Virginia Ban on Non-Competes for “Low” Wage Employees

Josh SchmandJosh Schmand

Along with a number of other employer friendly laws passed this summer (Values Act and Wage Theft Law), Virginia has joined Maryland in prohibiting non-compete agreements with certain “low” wage workers.

What is a non-compete agreement?

Under the new law, a “covenant not to compete” or non-compete agreement is an agreement between an employer and employee that restrains, prohibits, or otherwise restricts an individual’s ability, following the termination of the individual’s employment, to compete with his/her former employer.

Which employees are considered “low” wage earners?

Who is a “low” wage earner is a bit of a moving target. The new law defines a “low-wage employee” as an employee whose average weekly earnings during the previous 52 weeks (or if an employee worked fewer than 52 weeks, the average weekly earnings for the number of weeks that the employee worked) are less than the average weekly wage in the Commonwealth as determined by the Virginia Employment Commission (VEC). The VEC may issue a new average weekly wage as frequently as every quarter; recently the VEC calculated the average wage as $1,204 per week or $62,608 per year. This means that a non-compete that was enforceable when entered could violate the new law when employers attempt to enforce it if the employee now qualifies as a “low” wage earner.

Interns, students, apprentices, or trainees are all considered “low” wage earners. As are independent contractors making an hourly rate less than the median hourly wage for all jobs over the past year in the Commonwealth, as determined by the Bureau of Labor Statistics of the U.S. Department of Labor, which was recently calculated at $20.30 per hour.

The new law does not cover employees that earn their salary predominantly through sales commissions, incentives, or bonuses.

What is prohibited by the new law?

Employers are prohibited from entering into, enforcing, and even threatening to enforce non-compete agreements with any “low” wage employee from July 1, 2020 going forward. This means that non-compete agreements that were entered into before July 1, 2020 are safe, but employers should consult counsel before enforcing or threatening to enforce those agreements.

By its terms, the new law does not apply to similar contracts, such as confidentiality or nondisclosure agreements, that protect employers’ trade secrets and confidential or proprietary information.

The new law leaves some grey area regarding when it applies to non-solicit agreements with customers, so employers should review client non-solicitation agreements with counsel to ensure compliance.

The new law does not address other types of employment restrictions, such as prohibitions against the solicitation of employees.

What are the penalties?

Employers are subject to a civil penalty of $10,000 for each violation of the new law, as well as private rights of action. In addition to lost compensation that can be awarded in a lawsuit, a “low” wage employee is entitled to recover reasonable costs, including attorneys’ fees, from employers that enter into, enforce, or threaten to enforce a non-compliant non-compete agreement.

Are there other requirements for employers?

Employers must post a copy or summary of this new law with its other required posters. Failure to comply with the posting requirements will subject employers to a written warning for the first violation, a penalty of up to $250 for a second violation, and a penalty of up to $1,000 for a third and each subsequent violation.

Is D.C. next?

D.C. has introduced a similar ban on non-competes for low wage employees.

For more information, contact Josh at 301-347-1273 or jcschmand@lerchearly.com.

Maryland Imposes Mandatory Notice Requirements for Employers in New “Mini-WARN” Act

Violators Subject to Substantial Penalties

Marc EngelMarc Engel

The Maryland legislature substantially increased the breadth and scope of the state’s so-called “mini” Worker Adjustment and Retraining Notification (WARN) Act to, among other things, impose mandatory notice requirements and stringent penalties on employers who fail to comply with the new law. The new law, known as the Economic Stabilization Act (Act), took effect on October 1, 2020.

Overview

The Act applies to employers with 50 or more employees that operate an industrial, commercial, or business enterprise in Maryland. It is patterned loosely after the federal Worker Adjustment and Retraining Notification Act (Federal WARN). The new law defines an employee as an individual who works for an employer for an hourly or salaried wage or in a managerial and supervisory capacity. The term “employee” does not include individuals who work less than an average of 20 hours per week or have worked for an employer for less than six months in the immediately preceding 12 months.

Scope and Notice Requirements

Unlike the prior iteration of the law, which had voluntary notice provisions, the Act imposes mandatory notice requirements upon covered employers. They must provide 60 days written notice before they initiate a “reduction in operations” which the law defines as (i) the relocation of a part of an employer’s operation from one workplace to another existing or proposed site or (ii) the shutting down of a workplace or a portion of the operations of a workplace that reduces the number of employees by at least 25 percent or 15 employees, whichever is greater, over any 3-month period.

The scope of the Act is broader than its federal counterpart. Unlike the Federal WARN, which applies to employers with 100 or more employees, the Act, as noted, applies to employers with 50 or more employees. Another significant difference is that the statutory triggers are significantly lower under the new Maryland law – 25% or 15 employees – in comparison to Federal WARN which contains thresholds of 33% of the workforce or 50 employees.

The written notice must be provided to affected individuals or entities 60 days before initiating a reduction in operations. The notice must be given to the following:

  1. All employees at the workplace that is subject to the reduction in operations;
  2. Each exclusive representative or bargaining agency, (i.e., a union of the impacted employees);
  3. Maryland’s Dislocated Worker Unit; and
  4. All elected local officials in the area of the impacted workplace.

The notice must include the following:

  1. The name and address of the workplace where the reduction will occur;
  2. Contact information for the supervisor (name, telephone number, email address) for those seeking further information;
  3. A statement explaining whether the reduction in operations is temporary or permanent and whether the workplace is expected to shut down; and
  4. The expected date when the reduction in operations will begin.

Benefit Continuation

The new law directs the Maryland Secretary of Labor (Secretary) to establish regulations for the appropriate continuation of benefits such as health, severance, and pension that an employer should provide to employees who will be terminated due to a reduction in operations.

Significant Penalties

Unlike its predecessor, the new law carries very stiff penalties for violators. The Act authorizes the imposition of a civil penalty of up to $10,000 per day to be assessed by the Secretary for failure to provide the required notices to all required individuals and entities. The factors to be considered by the Secretary in assessing a penalty include the gravity of the violation; the size of the employer’s business; the good faith of the employer; and the employer’s history of violations of the Act.

Open Issues; Next Steps

Significantly, the Act leaves unaddressed the geographic length of a relocation that is required to trigger the employer’s notice obligations. The Act also does not contain some of the exceptions that exist under Federal WARN, including exceptions for (i) a faltering company; (ii) unforeseen business circumstances; and (iii) a natural disaster. Because of the differences in the Federal WARN and the Act, compliance with the federal statute may not constitute compliance with the Act.

Employers considering a relocation of jobs and/or a reduction in staff in Maryland should consult with experienced counsel before doing so.

For more information, contact Marc at 301-657-0184 or mrengel@lerchearly.com.